Elasticity of Supply The elasticity of supply can be defined as “the degree (measure) of responsiveness in quantity supplied to a change in price”. It is also defined as the percentage change in quantity supplied divided by percentage change in price. It represents the rate of change in quantity supplied due to a change in its own price. Elasticity of supply can be defined as “the degree (measure) of responsiveness in quantity supplied to a change in price”. It is also defined as the percentage change in quantity supplied divided by percentage change in price. It represents the rate of change in quantity supplied due to a change in it’s own price.

1. Elasticity of Supply
Unit 18
Instructor:
Atta Hussain Syed

2. 1.ELASTICITY OF SUPPLY
• The law of supply indicates the direction of change—if
price goes up, supply will increase. But how much supply
will rise in response to an increase in price cannot be
known from the law of supply.
• To quantify such change we require the concept of
elasticity of supply that measures the extent of quantities
supplied in response to a change in price.

3. 1.ELASTICITY OF SUPPLY
• Elasticity of supply can be defined as “the degree (measure)
of responsiveness in quantity supplied to a change in price”.
• It is also defined as the percentage change in quantity
supplied divided by percentage change in price.
• It represents the rate of change in quantity supplied due to a
change in it’s own price.

4. It can be calculated by using the following
formula:
ES = % change in quantity supplied/% change in price
Symbolically,
• ES = ∆Q/Q ÷ ∆P/P = ∆Q/∆P × P/Q
ΔQ= The change in quantity supplied
Q= The quantity supplied
ΔQ= The change in price
P= The price

5. Calculating Price Elasticities of Supply
Step 1. Use price elasticity of demand formula
Step 2. From the midpoint formula we know:

6. Step 3. Use the values provided in the in
each equation:
Step 4. Then, those values can be used to
determine the price elasticity of demand:
Calculating Price Elasticities of Supply

7. Given percentage change in price =10 percent
Q=200units; Q1​=225 units;
ΔQ=Q1​−Q=225−200)=25 units
Percentage change in quantity supplied =
Price elasticity of supply
Price elasticity of supply =1.25
Example: A 10 percent rise in the price of a commodity
raises its supply from 200 units to 225 units. Calculate
its price elasticity of supply.
Δ𝑄
𝑄
× 100 =
25
200
× 100 = 25%
Percentage change in quantity supplied
Percentage change in price
Es​= =
12.5 %
10 %
12.5 %
10 %
= 1.25=

8. 2. TYPES ELASTICITY OF SUPPLY

9. 1. ELASTIC SUPPLY (ES>1)
• Supply is said to be elastic when a
given percentage change in price leads
to a larger change in quantity supplied.
• Under this situation, the numerical
value of Es will be greater than one
but less than infinity.
• A supply curve is said to be elastic
when an increase in price increases
the quantity supplied a lot ( and vice
versa)

10. • Supply is said to be inelastic when a given
percentage change in price causes a smaller
change in quantity supplied. Here the numerical
value of elasticity of supply is greater than zero
but less than one.
• When the same increase in price increases
quantity supplied just a little, then the supply
curve is said to be inelastic.
2. INELASTIC SUPPLY (ES<1)

11. GRAPH REPRESENTATION OF
INELASTIC AND ELASTIC SUPPLY

12. GRAPH REPRESENTATION OF
INELASTIC AND ELASTIC SUPPLY

13. GRAPH REPRESENTATION OF
INELASTIC AND ELASTIC SUPPLY

14. • If price and quantity supplied change by the same
magnitude, then we have unit elasticity of supply. Any
straight line supply Curve passing through the origin, has
an elasticity of supply equal to 1.
• e.g. if price rises by 10% and supply expands by
10%.
3. UNIT ELASTICITY OF SUPPLY (Es= 1)

15. ΔQ =1 Because % ΔQ =%ΔP
ΔP
Quantity (Q)0
Price (P)
P
P-1
S
Q Q1
3. UNIT ELASTICITY OF SUPPLY (Es= 1)

16. • The numerical value of elasticity of supply, in exceptional
cases, may reach up to infinity. The supply curve PS1 (drawn
in graph on next slide) has an elasticity of supply equal to
infinity.
• Here the supply curve has been drawn parallel to the
horizontal axis. The economic interpretation of this supply
curve is that an unlimited quantity will be offered for sale at
the price OS. If price slightly drops down below OS, nothing
will be supplied.
4. PERFECTLY ELASTIC SUPPLY (ES = ∞)

17. Firms supply any amount at a price
Quantity0
Price
P S1
Es=∞
4. PERFECTLY ELASTIC SUPPLY (ES = ∞)

18. • This describes that whatever the price of the commodity, it
may even be zero, quantity supplied remains unchanged at
OQ.
• This sort of supply curve is conceived when we consider the
supply curve of land from the viewpoint of a country, or the
world as a whole.
• In such a case, the Supply is perfectly inelastic or Ed= 0
5. PERFECTLY INELASTIC SUPPLY
(ZERO ELASTICITY)

19. No effect on supply following
a change in price
Quantity0
Price
Q
S1
Es=0
5. PERFECTLY INELASTIC SUPPLY
(ZERO ELASTICITY)

20. • For example: the supply of exclusive items, like
the painting of Mona Lisa, falls into this category.
Whatever might be the price on offer, there is n
way we can increase its supply.

21. The elasticity of supply is not same for all commodities.
It may high or low depending upon number of factor.
Following factors influence elasticity of supply.
1. Nature of the Good
2. Change in Per-Unit Costs with Increased Production
3. Time Horizon
4. Share of Market for Inputs
5. Geographic Scope
Determinants of Elasticity of Supply

22. • The more easily the factors can be transferred from the
production of one good to that of another, the greater will be
the elasticity of supply.
• Since durable goods can be stored for a long time, its
elasticity of supply is very high. But for non-durable goods
and perishable goods elasticity of supply tends to be very
low.
1. The Nature of the Good

23. • The main determinant of the elasticity of supply is how
quickly per-unit costs increase with an increase in production.
 If increased production requires much higher cost,
then the supply curve will be inelastic.
 If production can increase with constant costs then the
supply curve will be elastic.
• Leonardo da Vinci paintings and pencil. Which has an
inelastic supply and which an elastic supply? Why?
2. Change in Per-Unit Costs with Increased Production

24. 3. Time Horizon
• The time horizon influences the elasticity of supply for goods.
 Immediately following a price increase, producers can
expand output only using their current capacity (making supply
inelastic)
 Over time, however, producers can expand their capacity (making
supply elastic)
• In agriculture, production plans
have to be made months or even
years ahead and they cannot be
altered quickly.
• Manufacturing industries, on the
other hand, can usually adjust their
output upwards or downwards
fairly quickly in response to
changing conditions in the market.

25. • Use of latest technology decreases the cost of
production and increases the production
capacity which increases supply of goods.
4. State of Technology

26. • The geographic scope of the market determines
the elasticity of supply for a good.
 The narrower the scope of the market of a
good, the more elastic its supply.
 The wider the scope of the market of a
good, the less elastic its supply.
5. Geographic Scope

27. Supply depends upon the below said factors. These
factors should not arise if they arise; they affect the
supply directly or indirectly.
• Whether conditions
• Floods
• Wars
• Epidemics (unexpected situations)
6. Factors Outside the Economic Sphere